News of Note
CRA confirms that the QSBCS exception to s. 55(5)(e)(i) applied to the repurchase of QSBCS held by a sibling’s Holdco simultaneously with the repurchase of the other sibling’s Holdco’s non-QSBCS
Email this ContentTwo sisters (A and B) each held, through their respective wholly-owned Holdcos (Holdco A and Holdco B) 50% of the shares of Opco, which were qualified small business corporation shares (QSBCS), and 50% of the shares of Investmentco, which were not.
Opco repurchased its shares held by Holdco B, and Investmentco simultaneously repurchased its shares held by Holdco A.
At issue was the rule in s. 55(5)(e)(i) deeming siblings to be unrelated for s. 55 purposes and the exception to that rule (also stated in s. 55(5)(e)(i)) for where a dividend is paid on a QSBCS. CRA confirmed that the repurchase by Opco would not be subject to s. 55(2) by virtue of such exception (even though such repurchase occurred as part of the same series of transactions as the repurchase by Investmentco), and that the repurchase by Investmentco would be subject to s. 55(2) since such exception was inapplicable.
Neal Armstrong. Summary of 9 October 2025 APFF Roundtable, Q.9 under s. 55(5)(e)(i).
CRA indicates that most (e.g., calendar-year) corporations should continue to use the old (pre-Update) CRA positions in computing safe income for 2023 and prior taxation years
In its 2023 Safe Income Paper, CRA indicated that its changes in position would apply prospectively to calculations of safe income for taxation years beginning after November 28, 2023.
CRA now confirmed that this meant that “a corporation's safe income must be calculated for each taxation year in accordance with the CRA positions applicable to that year.” For example, if a calendar-year corporation began a series of transactions in September 2025 that would include the payment of a dividend to which s. 55(2) would apply, it would determine its safe income as of September 2025 by calculating its safe income for each of its taxation years up to and including its 2023 taxation year using its old positions, and for its 2024 and 2025 taxation years using its new positions.
Neal Armstrong. Summary of 9 October 2025 APFF Roundtable, Q.8 under s. 55(2.1)(c).
CRA indicates that there is no set-off of an allowable refund of s. 207.04(1) tax of a controlling individual against that tax if the allowable refund arose in the following year
Where the controlling individual of a registered plan is subject in a year to the 50% tax payable pursuant to s. 207.04(1) for a year on the FMV of a non-qualified or prohibited investment, CRA allows a set-off of an allowable refund of that tax (generated pursuant to s. 207.04(4)) against that tax if the allowable refund arises in the same year, so that no net amount has to be remitted pursuant to the RC339 form. What if the allowable refund arises in the following year but before the RC339 return is required to be filed, e.g., because a non-qualified investment was not disposed of until early in that subsequent year?
CRA indicated that the set-off was only available pursuant to s. 207.07(1) where the allowable refund arose in the same year as the tax – and that if it arose in a subsequent year, the refund was to be dealt with separately by CRA pursuant to s. 207.07(2).
Neal Armstrong. Summaries of 9 October 2025 APFF Financial Planning Roundtable, Q.1 under s. 207.04(4) and s. 207.07(2).
Income Tax Severed Letters 29 October 2025
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA indicates that the amount of capital gain realized on the partial repayment of two advances with low and full basis turned on whether they were separate properties and how the debtor applied the repayment
If two advances owing to the taxpayer by the same corporation were not a single property and not identical properties (a determination which per s. 248(12) was to be made without regard to their different principal amounts), then the first advance had a low ACB due to the prior application of s. 80(10), and the second advance had full basis. CRA noted that under the Quebec law, the debtor generally had the right to indicate, when repaying, which debt was being discharged. Accordingly, whether the amount of a partial repayment of the advances that exceeded the amount of the first advance but not that of the second gave rise to a capital gain turned on whether the debtor applied the repayment first to the first advance or to the second.
On the other hand, if they were identical properties or a single property (it did not matter which), their ACBs would be pooled and a capital gain, based on using a pro rata portion of the total ACB, would be realized on the repayment.
Neal Armstrong. Summary of 9 October 2025 APFF Roundtable, Q.7 under s. 47(1) and General Concepts – Payment and Receipt.
CRA indicates no prohibition against the use of the intergenerational transfer rules on a simultaneous sale of 2 QSBCS corps (one a specified group entity) to a childco
One of the “intergenerational transfer” rule requirements, in s. 84.1(2.31)(a) or (2.32)(a), is that a previous inter-generational exception to s. 84.1 has not previously been sought. In 2024-1038231C6, CRA addressed the situation where a parent, who has not previously sought out the intergenerational exception, simultaneously disposes of subject shares to two separate purchaser corporations, each wholly-owned by an adult child. CRA indicated that the s. 84.1(2.31)(a) or (2.32)(a) exception could be met on the basis that the two (or multiple) dispositions occur at the same time as part of the same genuine intergenerational transfer.
Now, CRA has provided essentially the same response to a variation on this transaction. An individual, who held all the shares of Opco, which were qualified small business corporation shares (QSBCS), and all of the shares (also QSBCS) of Realtyco, which was a specified group entity and whose sole asset was a commercial building leased to Opco, simultaneously sold all those shares to a corporation wholly owned by her adult child.
CRA indicated that if such simultaneous sale occurred in the context of the same bona fide intergenerational transfer of the business, and no exception had previously been claimed in respect of the same business carried on, the s. 84.1(2.31)(a) or (2.32)(a) condition would be satisfied for each disposition.
Neal Armstrong. Summary of 9 October 2025 APFF Roundtable, Q.6 under s. 84.1(2.31)(a).
We have translated 6 more CRA interpretations
We have translated a further 6 CRA interpretations released in January of 2000. Their descriptors and links appear below. These are additions to our set of 3,354 full-text translations of French-language Technical Interpretation and Roundtable items (plus some ruling letters) of the Income Tax Rulings Directorate, which covers all of the last 25 ½ years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
CRA confirms that s. 8(14)(e)(iii) does not preclude a labour mobility deduction for the excess of temporary relocation expenses over non-taxable allowances received
Ss. 8(1)(t) and 8(14) provided the labour mobility deduction to an eligible tradesperson for eligible temporary relocation expenses, which include temporary lodging expenses incurred to travel long distances to earn income from temporary employment in construction, where all the requirements were satisfied.
CRA confirmed that such a tradesperson could (in this context of the other requirements being satisfied) deduct the difference between their accommodation expenses of $200 per night for 15 nights, and the non-taxable allowance received from their employer of $125 per night. Regarding the s. 8(14)(e)(iii) prohibition against taking the deduction “to the extent that” inter alia the tradesperson receives an allowance “in respect of” the relocation expenses unless the allowance is included in their income, CRA indicated that the quoted language excluded the deduction only for the “portion” of the expense which was matched by the non-taxable allowance, so that the $75 per night excess was deductible.
Neal Armstrong. Summary of 9 October 2025 APFF Roundtable, Q.5 under s. 8(14)(e)(iii).
CRA confirms that it may relieve interest on deficient or insufficient pre-death instalments
CRA, after indicating that if Instalments due before the date of death of the deceased were late or insufficient, interest and possibly a penalty may apply until the date of death, stated that it may consider interest and penalty relief under s. 220(3.1) where it was demonstrated that the deceased taxpayer was unable to comply due to circumstances beyond their control. It further stated:
Each request is examined individually and the CRA takes into account various factors such as the time of death, the method used to calculate the instalments, as well as the supporting documents provided. Depending on the facts of each situation, relief may be provided for all or part of the instalments.
Neal Armstrong. Summary of 9 October 2025 APFF Roundtable, Q.4 under s. 220(3.1).
CRA indicates that an amalgamation of Acquireco with Targetco should be treated notwithstanding s. 87(2)(a) as being sequenced after the Targetco acquisition
On January 1, 202X, a resident individual (Mr. A) sold all the shares of Targetco for cash consideration to a resident arm’s-length purchase (Acquireco). No s. 256(9) election was made. Also on January 1, 202X, Targetco and Acquireco amalgamated without the certificate of amalgamation specifying the time at which the amalgamation took place.
CRA indicated that the time relevant to determining whether Targetco qualified as an SBC for purposes of the qualified small business corporation shares (QSBCSs) was the actual time of the disposition of the shares by Mr. A. It noted in this regard that s. 256(9) did not deem control of a corporation to be acquired at the beginning of the day for purposes of determining whether a corporation was an SBC.
Although the time of an amalgamation was generally considered to be the earliest time on the date of amalgamation in the absence of a particular time being specified in the certificate of amalgamation, here:
[F]or the purposes of determining whether the shares of the capital stock of Targetco qualified as a QSBCS at the time of their disposition by Mr. A, it would be reasonable to consider that the logical order of the transactions is, first, the disposition by Mr. A of the shares he held in the capital stock of Targetco, followed by the amalgamation between Targetco and Acquireco. Consequently, only the assets of Targetco, without taking into account those of Acquireco, should be taken into account in determining whether Targetco qualified as an SBC at the time of the disposition of the shares by Mr. A.
Thus, it was not relevant that Acquireco held the acquisition cash on January 1 prior to the acquisition and amalgamation.
Neal Armstrong. Summaries of 9 October 2025 APFF Roundtable, Q.3 under s. 256(9) and s. 87(2)(a).
Neal H. Armstrong editor and contributor